9 Types of Mortgages Explained

When you’re in the market for a mortgage, the myriad of choice available can be bamboozling, as each will have different implications to the person holding it. We understand how disconcerting it can be having too much to choose from, so here we’re going to take a look at the main types you’re likely to encounter on your quest for home-ownership.Here we discuss 9 Types of Mortgages;

The Repayment Mortgage

The standard repayment mortgage is one where you slowly and methodically pay back all of the money borrowed over the term agreed when you took it out. This will involve paying off the capital, plus the interest incurred over the period and is the reason why another term for this kind of product is a ‘capital & interest mortgage’.

The Fixed Rate Mortgage

When talking about a fixed-rate mortgage, the ‘rate’ part relates to the interest rate enjoyed as part of the deal and the ‘fixed’ element describes the fact that you’re given a guarantee that whatever happens, your rate won’t change for the term of the deal. This can be anywhere between 1 and 10 years, after which point, your deal with revert to a standard variable rate deal.

The Standard Variable Rate Mortgage

Commonly known as SVR by lenders, the standard variable rate mortgage is the set default rate offered by that particular mortgage company. This rate will vary from lender to lender and it’s typically the rate you’ll pay when you have no deal in place and it will usually precipitate the homeowner to seek a new deal, as the SVRs are not known for being the best around.

The Flexible Mortgage

This type of mortgage will usually allow you to underpay or overpay each month with no penalties. In fact, a flexible mortgage even allows you to take an extended payment holiday, the result of which can be a higher interest rate. This one is designed to fit around the fluctuations of people’s lives and can come in a variety of different guises.

The Discounted Rate Mortgage

In a similar way to a fixed-rate mortgage that will offer you a guaranteed rate for a fixed term, a discounted rate mortgage is one that offers a discount on the lender’s own standard variable rate. One thing that needs to be considered with this one is that if the lender raises its SVR, your payment will go up.

The Tracker Mortgage

Like the discounted rate mortgage, payments on a tracker mortgage can vary from month to month. However, it differs because a tracker rate mortgage will fluctuate in line with a particular rate of interest e.g. the Bank of England’s base rate and then adding a certain amount on top of that. In this case, if the base rate increases or decreases, so does the amount you pay.

The Offset Mortgage

If you have some savings behind you, then an offset mortgage could be the way to go for you. Basically, if you had £20k in a savings account with the same bank you have your mortgage with, you can link this account to your mortgage and it means that the interest on £20k of your mortgage is taken out of the equation. For example, if your mortgage was £200k and you had £20k in savings, you’d only be paying interest on the difference i.e. £180k, which can save you a tidy amount in interest payments.

The Cashback Mortgage

This one is an incentivised deal whereby the mortgage company pays you a lump sum – typically a set % of your overall loan. What you have to watch out for with this type of mortgage is that you’ll pay for this money elsewhere by perhaps paying a higher rate than you would with some other deals.

The Interest-only Mortgage

The last product on our list is the interest-only mortgage, which is one used by people wanting to keep costs down. This is because – as the name would suggest – you’re only paying the interest and not paying off any of the capital. Those with this kind of arrangement usually need to have something else in place in order to pay off the mortgage at the end of the term.

In Conclusion

As you can see, there are many different types of mortgage available and when choosing yours, you need to understand which one fits you best. The pros and cons of each extend deeper than what we’ve described here, so we’d always recommend talking to a mortgage professional prior to making any big decisions.

At REMOUK, we offer fee free mortgage advice to our many customers across the country (the cost of our service is covered by commission from the lenders). We are dedicated to taking the hassle out of the mortgage application process. If you would like to know more about anything mentioned in this blog, you should head over to our website www.remouk.co.uk and take a look around.

If however, you would like to chat with one of our friendly experts, they’re available to talk to on 0113 873 0113 and are ready and waiting to take your call. Spend just a few minutes talking to us could save yourself an awful lot of stress that comes from making the wrong mortgage decision.

Thanks for reading and we’ll see you again next time.

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR OTHER DEBT SECURED ON IT.

YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.

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REMOUK Ltd provides advice on mortgages, protection and general insurance. We are based in Leeds, West Yorkshire but we provide advice to clients throughout the UK.

REMOUK Ltd is an appointed representative of TenetLime Ltd which is authorised and regulated by the Financial Conduct Authority. TenetLime Ltd is entered on the Financial Services Register (www.fca.org.uk/register) under reference 311266.